tv Newsmakers CSPAN September 12, 2010 6:00pm-6:30pm EDT
administration. joining us this week is michael mundaca, assistant treasury secretary for tax policy. here to question him is kim dixon from reuters and martin vaughn from dow jones. >> michael, i want to start out by asking you about the proposals that the president put forward, the tax proposals to stimulate the economy. one of those was that he wanted to allow businesses to immediately write off 100% of their newly commit purchases in 2011, the aim being to free up cash to invest higher. what we're leading -- what we're hearing is that cash is not the problem. the issue right now is that folks are worried about the economy neck getting better, continuing continuing to stagnate or getting worse. in that light, how much good can you do by simply offering
people a tax cuts if they are just worried about the economy not getting better? >> that is a good question. i think we need to put this in context. these are one not -- these are not one-of proposals. -- these are not one-off proposals. proposals. there has been made to states. these proposals now, these targeted proposals with respect to investment here in the united states, are meant to pull some of the cash that is on the sidelines right now, that businesses are looking at investing in, which they have the cash to do so and they are deciding whether to do so or not. what we are trying to do is incentivize them to invest right now by having a temporary targeted incentives with respect to capital purchases.
again, to pull the investment they might make into a more short-term try and frame -- timeframe. we know there is a lot more dude to heal the damage done by this deep recession. these are plans the president has announced. >> we are getting from lawmakers and aides that it is a pretty tight schedule and there may not be a lot of appetite to do this right now. is it still worth doing if congress cannot address it until the first part of next year? would delaying it until then reduce the effectiveness of these proposals? >> again, great question. congress does have a lot on its plate. we understand that. the priorities for them right now is moving small business bill in the senate. it has been held up for a while. that is the first order of
business when they come back next week. then they have to think about what to do on the bush tax cuts. we understand that. hopefully, we will have some agreement and those issues will move swiftly and then they can move to the proposals the president made this week. they are good policy. they are good proposals. if congress can i get to them in the next few weeks, they will still be good policy when congress returns. >> to pick up on that, the bush tax cuts is one of the big tax items that has to be done by the end of the year. the former white house budget director peter orcharor dog camt recently, in the interest of political expediency -- peter or zag came as speaking in the
interest of political expediency. >> he made it clear that he preferred extension only of the middle-class tax cut, not the high-end ones. we have a great legislative team at treasury and the white house. i will leave the political strategy to them. the president has been clearly policy, that the sound policy is policy, that the sound policy is to extend only the middle class tax cuts. middle class tax cuts. again, we simply cannot afford the tax cuts on the top 2% to in those should be allowed to expire as scheduled. >> could we afford to do it for one year? if the choice is doing it for one year or two years versus a deadlock in congress, like what happened last year with the estate tax, is there any room for compromise, do you think? >> again, the president has been
clear that the better policy is to allow the high and tax cuts to expire as scheduled. this talk of one year or two years, we think that is a strategy for permanence and rep boehner, in announcing his support for this two-year extension, also made it clear that he would fight for permanence. we cannot afford to have to borrow $700 billion in order to fund these tax cuts for the top 2% of americans. they should be allowed to expire as scheduled. >> but it is the choice between a short-term extension and this gridlock and not getting anything done? it would be fairly bad for the economy to let those lower and middle income tax cuts expire, right? >> i hope we can coalesce around the very sound policy of
doing that. rex michael mundaca, just to go -- >> michael mundaca, just to go back about the 100% expensing, etc., the uncertainty that business owners and capital investments are facing, does this talk of one year or two years, does this not add to uncertainty in the tax code and, thus, may not be contributing positively to the economy? >> that is a great point. we have to distinguish between the uncertainty created because we cannot get agreement around proposals and the uncertainty created by something else. we view the targeted temporary expensing as a measure to bring forward investment. it has to be temporary. the other proposal with respect to the r&d credit, that is not a proposal that is seeking to remove the uncertainty by taking out of the mix a year-to-year exercise we have to go through
to reauthorized that credit. i take your point. but on the expensing, it is temporary for a reason. the r&d credit is temporary because of the historical political accident. that we need to make permanent. remove the uncertainty, allow businesses to plan their r&d, create a grid jobs here in the u.s. with respect to those activities, to allow businesses to know that credit will be here and not is what they are facing this year. the credit is not there right now. it expired in 2009. we have to act to extend it to 2010. >> may be to just go back to the bush tax cuts and the policy on that, one of the questions is how do you define middle class? the president has defined that as a threshold of two hundred thousand dollars or less or for married color -- or for married couples it is $250,000 or less.
some people think that it is too low. some definition of the middle class may be broader than a family making $250,000 a year. are you rethinking that at all or is the administration considering supporting raising that to $500,000 or even $1 million? >> again, the president has been clear on setting those threshold at two hundred thousand dollars and $250,000. it covers 98% of americans. i think it is a sound definition of what is middle-class. people can say that 98% of americans are middle class or below. the president has been clear that is where we think the tax relief should be delivered. it is based on a number of different factors and analysis as the president has laid out. there was a time recently in which the middle class, defined
at the two hundred thousand dollars to a tune of $50,000, they did not see their income raised -- to get two hundred $50,000, they did not see their income raised. -- to $250,000, they did not see their income raise. >> is that income threshold pretty arbitrary? the difference between a family living in philadelphia making two hundred $80,000 a year and someone living in -- making $280,000 and someone living in missouri making two hundred $30,000 a year -- making $230,000? >> for simplicity, we have a system that applies across the
country. the income-tax brackets applied with no adjustment for where you live. there will be some oddities in the lines that are drawn. there always are. it would be complex to say that we would have our tax brackets and tax breaks key off the standard of living and the cost of that standard of living across different areas of the united states. this is a good point. all of these lines can be challenged. the president set them based on analysis of where the income growth has stagnated. again, we could be subject to criticism for setting them too high. for the reasons you pointed out, the middle class in certain parts of the country are solidly in that band of $25 0,000. >> i know you have more
discussions with people on capitol hill with elections races and who may be worried about the tax cut issue. have you addressed that or convince them that the president's position is the best position for the economy? >> will fortunately, i am removed from political discussions. in my jaw, on the tax policy side, i can -- in my job, on the tax policies are, i can focus on the policy and not the politics. >> money was used to fund research and development that already would get done. what is the administration's thinking on that? could that be an extension of the corporate windfall? >> that is a good question.
the credit its self does have an incremental element to it. any time your turn to incentivize behavior, there is an issue that economists call "buying out the base." the credit, as designed curley, has two general aspects -- as designed currently, has two general aspects. the president would take the second, more simplified aspect that has a rolling incremental side to it. again, we hope it makes credit work better, making credit similar to choose as opposed to the original credit. again, the credit is designed to incentivize the is -- this incremental element. >> this is c-span "newsmakers"
program. our guest is michael mundaca, assistant treasury secretary for tax policy. we have martin vaughn from dow jones and ken dixon from reuters. >> what is the strategy -- i know you need to work with lawmakers on capitol hill. >> there is more than enough in dollar amounts that can cover the proposal. we look forward to working with the legislators who are interested in moving this ahead. we want to hear from everyone, all the stakeholders, in this as we move ahead. >> you have some proposals on the international tax system. it deals with foreign tax credits and ensuring that a
greater share of the foreign profits are brought into the u.s. tax system. but the larger proposals on that still remain. is that an example of something that would be worthwhile to use for a permanent r&d credit? >> we have to work this through with those on the hill to see what their appetite is for any of those proposals. we intend to consult with them as well as the business community with respect to how it is that r&d, the infrastructure is that r&d, the infrastructure proposals as well, and the other issues that the president is pushing, how those things get paid for, fiscal responsibility and providing incentives. >> what are you hearing from staff members and the hill about their appetite for potential tax policy changes in the next two months? >> again, they are focused right
now to come back and getting the small business tax cut package passed. they have a better sense than i on how they can better get that. we hope they will get that done quickly and then they can turn to the other matters. >> is their optimism from them on small business and the bush tax cuts? >> i read the papers and it does appear that there is optimism for the small business tax cuts to move. it is a great package. it should get unanimous approval. we need 60 in the senate. most people think we can get that now. that would be great for small business and the country. then we can move on to the other priorities we have to address. >> let me ask a question regarding the vote the senate will take very soon when they get back into town. one of the first boats up is on
a proposal -- first votes up is on a proposal for north carolina health care law. do you feel that proposal, in its current form, is too onerous? will the administration opposes repeal to it? >> we have put out guidance already. the treasury and i are looking for comments from small business to engage in a way to constructively reduce the burden of this provision and still keep its value as a measure for ensuring tax compliance. we will continue to work through it. we have some time, but we are starting now. we want to get this right. the amendment that would repeal the provision is paired with a proposal that would
significantly cut back on certain health care protections and measures and is just not acceptable in its current form. >> do you feel confident that the proposal can be watered down enough or fixed enough so it would not be onerous without repealing it? do you think it would make just as much sense to repeal it you can find a way to pay for it? >> our role in addressing this is, again, to reduce the burden on small business, but keep the proposal effective as a means to ensure tax compliance. we will work with small business to get that done. there are constraints. there are limitations. we will do our best to get that done. there is the difference between what people low and what people pay. it has been the focus of democratic and republican administrations and congress. it is an important issue. we have to address it. secretary geithner and the
president are focused on this. we want to make sure that we collect the dollars that are owed. if we do not, that imposes a tax increase on everyone else. we want to make sure that it works, that the irs gets what it means, but without that un do toll on business. >> the tax credits that expired at the end of last year, there is the issue of whether, when or if there is a deal, it will be retroactive for millionaires and billionaires who died this year and did not have to pay taxes on their state. what is your view on that? >> as you know, the president proposed to make permanent the estate tax in the 2009 levels. we hope it would already happened. it has not. it is one of those issues that had begun should have been addressed much earlier in the
year. -- it is one of those issues that should have been addressed much earlier in the year. it will have to be worked. we do have a lot to do on the proposal. it is difficult to know what the eventual shape of it might be. what does the administration have a position? -- >> does the administration have a position? there has been talk about it complicating factor in the cost- basis of property, something that the bush administration would support. >> something that the -- some think that the tax would go away and what would be the harm of extending it forward? for some people, not having an estate tax increase would be a burden. the way the estate tax was structured in 2009 and will be personally, hopefully, would have extension of up to $3.5 million. if you have an estate that is lower than that, we have to
estimate that 99% of estates are under that. it helped in the record keeping. it kept taxes low. that is gone. if you have an estate that is below that amount, we have to build a historical basis. if you sell those assets, how much gains would be made and how much taxes would be paid. for those who think the estate tax is one away, the rest of been no harm done for the states, but that is not true. >> we are speaking with michael mundaca, the assistant treasury secretary for tax policy. is the amt, which could be a jolt at the end of tax season for a lot of people, a party for the obama i administration? >> it already is. part of the middle class tax
cuts were extended to take this uncertainty off the table. we understand the larger context of tax reform. we have to deal with emt. it is serving its purpose now that it was not meant to serve. a lot of the wealthiest americans did not bring down their tax to zero. it is now solidly within the middle class. we addressed that solidly year after year. it is time to take it head-on. the president has included it in his budget. it makes good sense to give the american people a view into how expensive this is and the fiscal discipline it requires to take on this. it is a priority for us. >> you talk a little bit about the larger picture of tax reform policy. do you foresee the obama
administration in the next year moving forward with larger tax reform policies? >> as you know, the president said that two groups, one which delivered its report a couple of weeks ago on its recommendations with respect to tax reform. it is a very solid report, their identification. then there is the fiscal commission that will come forward with its recommendations in december. we will take a close look at that. we think that can continue the debate we have to have about what reforms we make to our tax system. it simply is not working as well as it should right now. >> we have time for one question or two questions each. >> can i come back to the estate tax issue for a minute? even though the estate tax is not in place, would an election addresslea reasonable way to that problem? >> that is one of the options on the table. there are administrative
concerns with this being so late in the year. having the 2009 law, which is good policy, extended car rally, that is our focus. we need to figure out what to do with this gap. one possibility is an election to apply the 2009 law. but we have to appeal to congress. >> the dividend tax, the president's proposal is to raise dividend tax for those making more than $200,000 by 15%. what is the administration do to rectify that problem? >> people talk about letting the high tax cuts expire. the president is preserving an aspect of the high end tax cuts, allowing the dividend rate,
proposing that it go from 15% to 20%, not the highest rates that might apply. we will have to talk with congress on how to pay for that. it is not an exemption of the pay-go rule. >> is anything being discussed right now? >> we have enough in the budget. we have to look at the habitat on the hill to take on any of those. >> this is michael mundaca, assistant treasury secretary for tax policy. he worked in the treasury during the clinton administration, during the bush administration, and now during the obama administration. his specialty in some regards is international taxation. he has several degrees, a bachelor's in philosophy and physics from columbia, a master's in philosophy from the university of chicago. he got a law degree from uc berkeley. and he has an llm for taxation
from the university of miami. this is michael mundaca, assistant treasury secretary for tax policy. thank you for being on "new makers." we will be back to assess what we just heard. we are back with martin vaughan of dow jones and kim dickson of reuters. we have been talking about tax policy with the assistant treasury secretary. martin vaughan, did he say anything that was off message? >> not a lot. i think his answers underscored the dozens of uncertainties that there are out there in terms of whether -- of where the tax cut is going. we asked him what was going to be done about the estate tax? what will be done about the top rates? how will you handle the dividend tax? how will the stimulus proposals be paid? his answer to almost all of them was, we are working on that and we need to work with congress.
we are so much into -- so much of the tax code is in the air, even the administration and the people in charge in congress to not have a handle on how they will move for on this. >> i agree. one of the interesting things i think to point out is that almost every question about certain policy is how it will be paid for. it ties his hands to a certain extent because congress needs to develop a that. the administration has put out a budget with different ways to pay for these proposals. a lot of them are deeply unpopular. it has to do with how quickly the tax can come in for income earned abroad. congress is not have an appetite this year for proving even small amounts of stimulus, which the administration has avoided using. but the key is how to pay for some of these tax cuts that we're talking about or keeping taxes lower because of the cliff we are going off at the end of
the year. i do not know if the viewers know, but all income taxes will go up at the end of the year for go up at the end of the year for all of us because of laws that were enacted in 2001 and 2003 under george w. bush. that is why this has to get done by the end of the year. >> mr. mundaca expressed optimism that congress will enact this before the november recess, before the election recess. do you share that optimism, knowing what you know about the politics in this? >> i think something is probably going to get some kind of compromise. the situation last year, where the estate tax expired because the democrats and the republicans could not come together, at that point, all the experts and pundits said it would not happen. but this is not -- but this is a much bigger issue. this isn't tax increase on every
american. it could more than doubled -- this is a tax increase on every american. it could even more than double. >> it is obviously a very polarized environment right now. waiting until the lame duck session to address the expression of these tax cuts is a gamble. if the republicans make big gains, they will not be in any gains, they will not be in any mood to pass obama's version of extending the tax cuts. there it is a danger of a stalemate that could push us into next year. i agree with him. the likelihood is that they will address the middle class tax and make sure they do not go up, but there is a good chance that they might not do it. >> one of the issues we talked about was the uncertainty in the co